Education Rather than Age-Structure Brings Demographic Dividend

Wolfgang Lutz, Wittgenstein Centre
Jesus Crespo Cuaresma, Wittgenstein Centre (IIASA, VID/ÖAW, WU)
Endale Kebede, Wittgenstein Centre for Demography and Global Human Capital
Alexia Fuernkranz-Prskawetz, TU Vienna, Institute of Statistics and Mathematical Methods in Economics and VID/ÖAW
Erich Striessnig, Wittgenstein Centre (IIASA, VID/ÖAW, WU)
Warren C. Sanderson, Stony Brook University, State University of New York (SUNY)

Initially focusing on population growth, the notion of demographic dividend has shifted the attention to changes in age structures with an assumed window of opportunity that opens when falling birth rates lead to a relatively higher proportion of the working age population. This has become the dominant paradigm and an advocacy tool for highlighting the benefits of fertility decline. While this view acknowledges that the dividend can only be realized if associated with investments in human capital, its causal trigger is still seen in exogenous fertility decline. We assess the relative importance of changing age structure and increasing human capital for economic growth for a panel of 165 countries for 1980-2015. The results show a clear dominance of improving education over age structure and give evidence the demographic dividend is driven by human capital. Declining youth dependency ratios even show negative impacts on income growth when combined with low education.